One of the most controversial practices in the rental industry is known as the “Cash for Keys” approach. If you bring this up in a group of rental industry players, you might get various reactions from eye rolls and verbal jabs to high fives and thumbs-ups. That is because there’s a gray area to it. For some, it’s unethical and unprofessional, while for others, it’s practical and fair.
What is Cash for Keys?
Cash for keys, as the name suggests, is when a landlord offers to pay a tenant a certain amount of money to give up his keys to the rented unit. Usually, evicting a tenant is long, tedious, and stressful when you go through an eviction process in court. Cash for keys skips that process. This strategy is also used by banks in a foreclosure situation.
Why Landlords do it
There are common reasons why landlords offer cash for keys. The most common is the desire to evict a tenant (due to non-payment, destruction of property, or other violations of the lease) without going through and spending on a legal eviction process. In cases like this, they would justify the act because it is a win-win for all parties involved: the landlord gets rid of the tenant, the tenant gets some cash without an eviction record.
Another reason is if a buyer purchases a rental home occupied by tenants that he wasn’t able to screen himself or his rental agent.
Tips on Executing Cash for Keys
Since there may be ethical and legal concerns that may arise with this method of evicting a tenant, there are a few ways to ensure that it goes smoothly and is executed fairly.
Due process
It would be risky to offer cash for keys the moment a major lease violation was committed. When an eviction process begins, a landlord must first discuss with the tenant the intention to evict, the reason for eviction, and the negative impact of an eviction history on a tenant’s record.
Offer a Better Alternative for Everyone
When discussing the eviction with the tenant, the latter would often try to ask for a bargain because if they have a record of a court-ordered eviction, it would be challenging for them to find a new place to rent while the eviction is on their record (usually for 7 years).
Since the tenant asks for a bargain, it would be a go signal to offer cash for keys. The landlord must explain how much he will pay the tenant to surrender the keys on a certain date, and without any damage to the property. Emphasize that if they agree, you will no longer file an eviction in court. If they are being evicted due to non-payment, it means that they don’t have money, so they will most probably take the deal.
Document the Agreement
A document that spells out the terms and details included in the cash for keys agreement must be signed by both parties. It must include the amount that the landlord will pay the tenant as well as the date that the tenant must vacate the unit. The agreement must also state that if the tenant fails to leave by the agreed date, the eviction will move forward in court.
Move-out Day
On the day the tenant moves out, the landlord must be present to inspect the property to make sure that the tenant did not cause any damage or stolen items. He must bring the paperwork to be signed and the check for the amount to be paid in exchange for the keys.
Prep the Unit
Get the unit ready for the next tenant. Leaving the unit unoccupied would mean income loss for the landlord. The sooner the unit is ready for occupancy (cleaned, changed locks, undergo repair and maintenance), the sooner the landlord can earn what he spent on the previous tenant.
Find a Better Tenant
If the previous tenant was offered cash for keys due to bad behavior, then the landlord must avoid finding another tenant of that kind. Here’s where your role as a rental agent comes in. Once the unit is ready and you published a listing on Padleads, applicants will start expressing their interest. Even though you are eager to fill in the vacancy, you must still be thorough in conducting the screening process. After all, you don’t want the landlord to end up with a tenant that would eventually need to be evicted.